China innovation drive defies conventional wisdom

The views of a leading scholar on the nature of Chinese innovation runs counter to the conventional wisdom in the West about what makes the Middle Kingdom tick.

WASHINGTON – The widely held view in the West is that the centers of Chinese innovation can be found in Beijing, with its government largesse and tightly integrated university system, and Shanghai, with its gleaming towers and far-flung industrial parks.

The conventional wisdom has it that the Pearl River Delta that includes the booming city of Shenzhen and surrounding Guangdong province is nothing more than China’s sweatshop.

That view is precisely backwards, argues America’s foremost scholar on Chinese innovation policy, Dan Breznitz of Georgia Tech’s Sam Nunn School of International Affairs. Breznitz, the co-author of a landmark 2011 book, “Run of the Red Queen: Government, Innovation, Globalization and Economic Growth in China,” was one of the first western thinkers to probe the inner workings of China’s evolving approach to innovation and what it means for the global economy.

The book’s thesis is that in a world of globally fragmented production, “China does not need to master breakthrough innovations to achieve success.” Instead, like the Red Queen from Lewis Carroll’s “Through the Looking-Glass and What Alice Found There,” China needs only to keep pace with technological innovations elsewhere, then master later stages of innovation.

At the center of China’s brand of innovation is Shenzhen, with its acres of soulless manufacturing facilities – lacking all the glitz of shiny Shanghai or the gravitas of well-heeled Beijing.

To support his argument, Breznitz notes that the Chinese companies most feared by global competitors -– Huawei, ZTE and Tencent, China’s leading Internet portal and content provider -- are all based in and around Shenzhen. Despite the recent hoopla over Huawei’s ties to the People’ Liberation Army, Brenznitz notes that Beijing did not bestow the title of “telecommunications national champion” on Huawei as it did to state-owned enterprises like Datang.

Furthermore, when all the IT centers of Guangdong province are combined, the region outpaces Beijing (5 percent) and Shanghai (8.1 percent) in the percentage of Chinese patents issued, Breznitz discovered. The region accounts for no less than 18.7 percent of all patents issued.

As told to Breznitz by a regional official, here is one of the most concise descriptions I’ve ever read on the nature of Chinese technology innovation:

We think of innovation as something China didn’t have before, something we can now conceive and do. Let me give you an example. Take this teacup. The first people who made this type of teacup made of lot of money. The people followed and began making the cup as well. Then more people began to make this cup. What happened? The cup was overproduced and was worth less money. When products come out and make a lot of money and everyone wants to follow, we the government encourage them to innovate around the idea instead of just following others. Even if you want to make cups, you can make a smaller cup. This is innovation.

It would serve us well in the West to forget most of what we think we know about China and its innovation drive and begin a reevaluation by reading Dan Breznitz’s remarkable book.

This book might have a few things other's haven't realised but overall as it stands claiming innovation factory based on millennia old facts wont cut it. What matters is the present and how each fares vis-a-vis others in the new game called technology. Now almost everybody has access to a wide range of similar resources, which, never before happened in the history of the world, so the present is a much better measure of what each country can do.

Assume, Neo1, you are referring to the cup example. Breznitz may not have the firmest of grips on technologies like semiconductors, but he has thoroughly researched the nature of Chinese technology innovation. His book focuses on the technologies that Beijing deems strategic. One of these is IC design. (That's one reason why we have focused much of our coverage on China's emerging fabless IC industry.) The book is not strong on technology, but it thoroughly explores the sausage-making aspects of innovation in the world's second largest economy and the holder of much of our debt.

Hi George, when you mention sausage-making, are you referring to the "grind-it-out" kind of work effort that many around the world do as part of serving a large market, or are you referring to what the old Ad-Prac'ers of Harvard Business School fame of the 50's and 60's referred to as the sausage game: start with a great all-meat sausage that everyone loves, and over time introduce more and more sawdust to increase your margins? Or both?

The former. Breznitz provides an excellent analysis of what's really going on on the ground in China because he talked to all of the keys players in government, industry, finance. That's why we thought his argument about the center of Chinese innovation being in Shenzhen was so compelling. The conventional wisdom says all those shiny new buildings in Beijing and Shanghai are symbols of an innovative economy. The facts on the ground argue otherwise.

That looks like a pretty interesting read... I'll look it up on Amazon now.
"China does not need to master breakthrough innovations to achieve success" - that reminded me of something I heard a lot while on a press trip in Italy. The manufacturers we spoke to said that in order to compete with China, they had to make everything unique and customized to their customers specific needs. Because they knew that any innovation would be quickly copied and replicated thousands of times by the Chinese. But the power of Chinese manufacturing is also, to some extent, its downfall, because while making tons and tons of the same thing over and over will win in terms of volume, there will always be a market for "niche" and "custom" and China can not, as yet, win in THAT space.

Good comments Sylvie. But the "niche and custom" market is probably the only thing that is keeping many companies in business these days. Let's hope China never figures out how to play that market. But I'm not all that optimistic. Their resources are huge...

Bob, to my opinion your view is right. Niche markets is the only thing to keep the US and Europe running. Look at the car industry in Germany: It is booming! Every successful Chinese wants a BMW, Audi or a Mercedes, as simple as that. The same for the defense industry in the US: Beautiful products they make. China definately will buy some of it.
*
But our modern management brought away all of our own knowledge of making 'simpler' things. The things we all need. They all brought it to China, for free. They gave that ancient knowledge (from generations to generations) away. From producing copper tubes to producing modern electronic parts. And look what is happening? Look at -for example- Rigol in China? Rigol makes oscilloscopes and competes touch v.s. the low end scopes from Tek and Agilent. Amazing and sad as well. Very annoying and the fact that our modern managers are job hoppers is not doing us any good either... I find that THIS is the basis of all our problems: Modern management combined with a part of too big of greed.

I cannot remember the book, it said that some Chinese manufactures do not worry about being the best in their field. Being the best costs a lot and though the profits margins are higher per unit sold, fewer people can afford to buy the best. What the idea is that Chinese manufactures aim for 75% quality that sells for 25% of the best's cost and sell more units and make even more profits than the costs. The idea is at 75% quality, most people will find that acceptable for the price they paid.